Latin America a Better EM Stock Bet Than Asia Now for Citigroup

(Bloomberg) -- Latin America is a better bet for emerging-market stock investors than Asia, according to Citigroup Inc.

A greater exposure to commodities and the weaker dollar, less geopolitical and regulatory risk, and lagging performance this year, all favor Latin American shares over their Asian counterparts, wrote strategists including Jeremy Hale in a note Thursday.

While Asia’s technology exposure has helped the region’s shares outperform in the recent rally, both the magnitude of the move and the likelihood of increased regulatory risk from a potential Democrat administration in the U.S. are a worry, according to Citi.

Asia is also more at risk from geopolitics, with both Democrats and Republicans holding a negative view on China, it said.

“Latam is more exposed to commodities, where the commodity team’s generally bullish outlook should be supportive. In contrast, MSCI Asia is mostly tech,” the strategists said. “We go long Latin America versus Asia equities.”

The MSCI Emerging Asia Net Total Return Index has climbed 6% this year, handily beating the 27% decline in its Latin American counterpart, according to data compiled by Bloomberg.

Meanwhile, in a separate note, Citi’s credit team noted some Latin American bonds were trading “particularly cheap” compared to their peers. Strategists including Eric Ollom said continued support from the Federal Reserve should spill over into emerging market bonds, with Mexico, Colombia and Indonesia among the most attractive.

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